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Let your profits drive how much you risk with this forex trading strategy

by , 21 April 2015

Forex trading can be a lucrative way of making money. But even the best of forex traders will encounter losing trades.

To ensure a few losing trades don't decimate your trading account, it's vital to manage your risks.

This forex trading strategy means your success denotes how much you put risk with each trade.

Let's take a look at how it works…

How this forex trading strategy works

This risk management method works by risking the same percentage of your trading account every time you put on a forex trade.

The basis of this forex trading strategy is how much is in your trading account. This means you won’t risk the same amount on each trade. This changes depending on your previous success.

To follow this strategy, you need to know the percentage you’re willing to risk on each trade.

How to work out the percentage risk to use

You need to decide what percentage of your account you’re going to risk on each trade:

  • If you’re very conservative, you may opt for 1% of your trading account.
  • You may decide on 2%.
  • Or if you’re more of a risk taker, put 3% or 4% of your trading account at risk on each trade.

Just make sure you’re happy with the amount you risk. This is the amount you’re willing to lose on each trade.

How to calculate how much you actually risk on each trade

Let’s say you decide you want to risk 2% of your trading account on each trade.

If you have a starting trading account balance of R20,000, the maximum you’ll risk on each trade is R400 (2% of R20,000).

If your first trade goes against you, you’ll only risk R392 (2% of R19,600) on the next trade.

But if your first trade goes according to plan, you’ll risk a higher amount based on your higher trading account balance.

The more successful you are at forex trading, the higher your trade sizes become in rands and the bigger your potential profits.

When it comes to putting a forex trade on, you’ll use the amount you’re willing to risk on each trade along with the size of your stop loss to stick to the amount you’re prepared to risk.

So there you have it. Let your profits drive how much you risk with this forex trading strategy.

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Let your profits drive how much you risk with this forex trading strategy
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